Kentucky Tells Kalshi & Polymarket: If It Quacks Like a Sportsbook, Sue Me Anyway 🦆

Kentucky Attorney General Russell Coleman filed lawsuits in state court Wednesday against prediction market platforms Polymarket and Kalshi, along with Kalshi partners Coinbase, Robinhood and Webull, accusing them of "operating unlicensed and illegal sports betting and gambling platforms." "Kalshi and Polymarket are operating illegal sportsbooks in Kentucky and breaking our laws," Coleman said. "These multi-billion dollar corporations and their legal fictions don't pass the sniff test. As one of our state legislative leaders said it best, 'If it looks like a duck and quacks like a duck…'" The complaint alleged the platforms are "doing business without a Kentucky gaming license or following state regulations" and that sports event contracts "fall squarely within the definition of 'sports wagering' under Kentucky law." It also claimed the platforms offer users "few or no resources" to identify or seek help for a gambling problem as required by state law.

The filings add Kentucky to a wave of state-level actions targeting event-contract platforms. At least 17 other states have taken prediction market operators to court, attracting involvement from the US Commodity Futures Trading Commission and the White House. Kalshi and Polymarket, which together recorded $25 billion in monthly trading volume in May according to Token Terminal, have argued that their event contracts are swaps regulated under federal commodities law. The CFTC has sued eight states after they acted against prediction markets, asserting that state regulators were stepping on its authority. A federal judge in the Western District of Michigan on Wednesday denied Polymarket's request for a preliminary injunction against Michigan regulators who seek to restrict sports-related wagers, ruling that those contracts do not constitute swaps under the CFTC's jurisdiction.

A Polymarket spokesperson told Cointelegraph that Kentucky's action "runs counter to the CFTC's established framework for regulating prediction markets. We look forward to addressing these claims through the appropriate legal process." Kalshi spokesperson Jacki McGavick said that "Kalshi is a federally regulated exchange — the CFTC is our regulator, not the states. Courts have already recognized this, and we're confident they will here too." The CFTC did not immediately respond to a request for comment. Kentucky regulators in their complaint also sued VGW, an online casino platform allegedly offering illegal sweepstakes.

The new suits come as Kalshi and Polymarket, through a coalition of platforms, are already litigating against Kentucky after suing the state on Friday to challenge its first-in-the-country 14.25% tax on prediction market transaction fees, calling it discriminatory and saying it oversteps federal law. Results in the broader fight have varied by circuit: in the Sixth Circuit, which oversees federal courts in Kentucky, Ohio, Tennessee and Michigan, two district court judges have preliminarily sided with state regulators and one has sided with prediction markets. The issue is widely expected to ultimately reach the US Supreme Court.